Sunday, March 17, 2013

EU Forces Cyprus to Destroy Its Depositors

Europe is testing the limits of its citizens' patience.  The government of Cyprus has announced a levy of between 6.75% and 9.9% on depositors accounts in Cypriot banks.  This stunning move comes at the behest of the ECB as a requirement for Cyprus to remain in the eurozone.

Early reaction from ordinary citizens is entirely predictable.  One guy parked a bulldozer in front of his Cyprus bank.  The outrage expressed on social media channels is palpable.  Calling it a "bail-in" with exchanges of shares in the banks as compensation means nothing if those bank shares ultimately prove worthless.

The tone of mainstream media coverage is as outrageous as this decision.  Talking heads are congratulating Europe's leaders and trying to confine the debate to choices between some confiscation or total confiscation.    The IMF's advocacy of a total "bail-in" for every account larger than 100K euros means that option is still on the table if this measure doesn't stabilize the Cypriot banking system.  That may now become a self-fulfilling prophecy as depositors start making panicked withdrawals.

I am not surprised that Europe's leaders think the savings of common citizens are collective assets to be appropriated as they see fit.  I am not surprised that sovereign governments are bailing out criminally incompetent bankers with the savings of people who have done the right things during their working lives.

I will be very surprised if there are no bank runs in the PIIGS countries on Monday and Tuesday.  Account holders in Europe have a very limited window of opportunity to protect their life savings before more onerous financial repression comes their way.  This confiscatory grey swan is about to lay a big fat goose egg all over European financial markets.